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Professional Advice & Introduction: Commodity Financing. Project Funding. Self-Liquidating Loans. Assets Management. High Yield Investment Programs. Discounting Doc. PN, L/C, SL/C, BG. Banking & Insurance Documents. Secured Financial Procedures. Doc.Texts. Transactions of Precious Stones, Metals.
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WIM-Impact Inc.(SA.) (Finance)
PAN ASIA CORPORATION (Project)
LISA-CORPORATION-NGUYEN & Cie (Trade) Respectively registered:GENEVA No.3412/1993;FEDERAL No.CH-660-0372993-4 MORGES (Vaud)-MOUDON (Vaud),SWITZERLAND
Director: Prof.Dr.NGUYEN PHUC LIEN, Economist Licence in Mathematical Economy
Doctor in Economy/ Finance (Stock Exchange)
Graduate at University in Computer Sciences
Weekdays:
22, Rue du Prieure, CH-1202 GENEVA, Switzerland
Tel.:0041 22 731 82 66. Fax:0041 22 738 28 08. Mobile:0041 79 766 65 83
E-Mail: wim-impact.drlien@bluewin.ch
Weekends:
43, Heideweg, CH-2503 BIEL/BIENNE, Switzerland
Tel.:0041 32 365 24 49. Fax:0041 32 365 24 49. Mobile:0041 79 766 65 72
E-Mail: drlien.wim-impact@bluewin.ch
Website:
http://www.VietTUDAN.net
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RECENT INFORMATIONS___________________________________________
CONCRETE EXAMPLE OF A TRANSACTION: FUNDING TO PROJECTS IN POOR COUNTRIES by Prof.Dr.NGUYEN PHUC LIEN, Economist
PRIVATE PLACEMENT PROGRAMS
PRINCIPLES & PRACTICES_________________________________________
PRINCIPLES OF ISSUES AND OF BANK DOCUMENT MARKETS
CONTENTS:
@ PRIVATE PLACEMENT FOR HIGH RETURN (HYIP)
By Prof.Dr.NGUYEN PHUC LIEN, Economist, Geneva, Switzerland
@ HYIP WAS ALREADY A POPULAR FINANCIAL METHOD
IN POOR COUNTRIES
By Prof.Dr.NGUYEN PHUC LIEN, Economist, Geneva, Switzerland
@ BANK DEBENTURE TRADING
By Mr.Harold MILLER, Financier, California, USA
@ SUSTAINED LOAN PROGRAMS:
EXAMPLE OF FINANCING BY PRIVATE PLACEMENT
By Prof.Dr.NGUYEN PHUC LIEN, Economist, Geneva, Switzerland
VARIETIES_______________________________________________________
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RECENT INFORMATIONS___________________________________________
CONCRETE EXAMPLE OF A TRANSACTION: FUNDING TO PROJECTS IN POOR COUNTRIES by Prof.Dr.NGUYEN PHUC LIEN, Economist
Introduction
Great Banks provide Loans to rich Companies in rich Countries. A young and dynamic Student who just finishes University would like to realize an excellent Project. But how about the financing ? He comes to a Bank and this Bank asks him if he can provide a Bank Guarantee. How can he get a Bank Guarantee ? Impossible (!) because he just finishes University and belongs to poor family.
Globalization ? Technologically, we agree with it. But Economically and mostly Financially, this is the way to centralize the force of finances to Great Banks in rich Countries. Industrial Countries want to sell manufactured products in worldwide Market : Globalization of Selling Products everywhere to get Monney then Centralization of Monney to Great Banks in Industrial Countries. GLOBALIZATION OF PRODUCTS=CENTRALIZATION OF MONNEY. The World will be happy if we realize the Financial Globalization.
During years, we were trying to develop the SUSTAINED LOANS TO PROJECTS in poor Countries. We were introduced by the KRAUSER Group (California) to work in Bahamas (Nassau) during one month for the Offshore Funds. This is a source of Lines of Credit.
For the SUSTAINED LOANS, we combine Lines of Credit and Private Placement:
1) Activating the Assets: Precious Stones, Properties, Fine Arts...
2) On the basis of these Assets, Banks can issue Financial Safekeeping
Receipts or Bank Guarantees, Standby Letters of Credit.
3) With these Bank Instruments as Collaterals, we arrange Lines of
Credit.
4) With Lines of Credit, we realize the Buy/Sell Bank Instruments,
MTN...for Profits: Private Placement Programs.
5) Then the Funding to Projects is from these Profits.
Actually, we are accelerating some transactions, mostly for small and poor Countries. Our main work is the Private Placement for high Profits in order to realize Projects.
We would like to attach here an example with complete Documentation. I hope it will be useful to our Readers who are interested in this matter. For the explanation in details, you can visit our Web:
http://www.VietTUDAN.net (Chapter FINinfo--Financial Services).
Realization
LIST OF DOCUMENTS TO BE COMPLETED
1) Letter of Intent
2) Corporate Resolution (If Company)
3) Certificate of Incorporation
4) Passport of the Authorized Signatory (Enlarged A4 Colour Copy)
5) Bank Confirmation of Issuing Bank Guarantee
6) Text of Bank Guarantee attached
7) Power Authorization
8) Passport of the Mandate (Enlarged A4 Colour Copy)
9) Client (Authorised Signatory) Information Sheet
10) Authorization to Verify & Authenticate
11) Non-Solicitation Letter
12) Origin & History of Assets (Precious Stones)
13) Report of Appraisal
14) Appraisal Value
15) Text of Fee & Commission Protection Agreement
16) Draft of Contract: PARTNERSHIP AGREEMENT
REMARKS
A. 5) Bank Confirmation of Issuing Bank Guarantee
6) Text of Bank Guarantee attached
These two Documents are utilized as Proof of Funds. Your Text of Bank Guarantee is accepted.
B. 12) Origin & History of Assets (Precious Stones…)
13) Appraisal Report
14) Appraisal Value
You have already these Documents concerning the precious stones. You have showed them to me last time in Geneva.
C. 15) Text of Fee & Commission Protection Agreement
You issue this Document to each Participant individually
D. Draft of Contract
This is the Trading Contract. After studying, two sides sign it
Text of Draft of Contract: PARTNERSHIP AGREEMENT
This Agreement is entered into by and between:
Financial Group ______, a _________(Name of Conutry) Corporation registered in the _____________ and/or its assigns (“XXXX”)
and
______________(Individual or Company) (Investor) and/or assigns (“UNDERWRITER”).
R E C I T A L S:
WHEREAS, the parties herein propose to form a partnership to engage in the business of buying and selling (“trading”) certain financial instruments;
WHEREAS, XXXX is organized under the laws of the State of California and the United States of America for the purposes of providing counsel and advice to clients regarding the management of various tangible and intangible assets;
WHEREAS, UNDERWRITER has tangible assets in the form of unencumbered United States Dollars that it wishes to use to engage in the buying and selling of certain financial instruments;
WHEREAS, XXXX has certain specific capabilities to arrange for the purchase and sale of financial instruments;
WHEREAS, UNDERWRITER desires to avail itself of the experience, sources of information, advice, assistance and certain facilities of, or available to, XXXX and to have XXXX undertake the duties and responsibilities hereinafter set forth;
WHEREAS, XXXX is willing to undertake to render such services on the terms and conditions hereinafter set forth and to contribute its expertise, knowledge, and capabilities to the mutual benefit of the parties hereto;
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WHEREAS, UNDERWRITER has agreed to make available a BG from ______________Bank, in the amount of $300,000,000 or More (Three hundred Million US dollars or More) (the “ASSETS”) for the purpose of underwriting certain buy and sell transactions, first by short term Program then by long term Program during 40 (forty) weeks renewable by mutual consent as described herein for the mutual benefit of the parties hereto;
WHEREAS, the parties desire to form a partnership (the “PARTNERSHIP”), by execution of this Agreement for the purposes provided to fix and define their respective responsibilities, interests, and liabilities in connection with the performance of the before mentioned;
NOW, THEREFORE, in consideration of mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to constitute themselves as joint partners (the “PARTNERS”) for the purposes set forth herein, and intending to be legally bound hereby, the parties hereto do covenant, agree, and certify as follows:
1. Formation of Partnership
The PARTNERSHIP shall be formed as a Limited Partnership organized under the laws of __________________________.
1.1 General Partner
XXXX shall act as the General Partner and assume all duties and responsibilities, as described herein, for operating and managing the PARTNERSHIP. In exchange for accepting these responsibilities and contributing its skill, expertise, contacts, technology, and other resources to the PARTNERSHIP, XXXX shall participate in any profits generated by the PARTNERSHIP as set forth herein.
1.2 Limited Partners
The UNDERWRITER shall act as a Limited Partner and have no responsibilities for operating or managing the PARTNERSHIP. In exchange for providing certain financial consideration herein described, the UNDERWRITER shall participate in any profits generated by the PARTNERSHIP as set forth herein.
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1.3 Name
The PARTNERSHIP shall be known by the name: SOWELL Trading LLP (or to be determined)
Principal Place of Business:
The PARTNERSHIP shall have its principal business office co-located with the offices of
______ ___________________, Address:____________________________
or at some other location agreeable to the PARTNERS.
2. Contributions and Participation of Partners
2.1 UNDERWRITER
The UNDERWRITER shall contribute funds in the amount of $300,000.000 or more (Three Hundred Million US Dollars or more) (the “ASSETS”) in the form of BG/LC from _________________Bank. The ASSETS shall be returned to the UNDERWRITER in its entirety at the completion of this Agreement. The UNDERWRITER and/or assigns will be paid 50% (Fifty Percent) of all net profits and be responsible for 50% (Fifty Percent) of all expenses, fees, and other legitimate costs of the business of the PARTNERSHIP. (These expenses will be deducted out from the settlement of the first tranche transaction).
2.2 XXXX.
E.D.E.S shall contribute the skills, experience, expertise, technology, contacts, relationships, and other resources required to earn profits for the PARTNERS by leveraging the ASSETS in certain financial transactions as described herein. XXXX and/or assigns will be paid 50% (Fifty Percent) of all profits and be responsible for 50% (Fifty Percent) of all expenses, fees, and other legitimate costs of the business of the PARTNERSHIP. (These expenses will be deducted out from the settlement of the first tranche transaction).
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3. Duties and Responsibilities of Partners
3.1 UNDERWRITER
The UNDERWRITER agrees to make the ASSETS available to the PARTNERSHIP for the term of this AGREEMENT and to provide XXXX, as the General Partner, with sufficient access to the ASSETS to establish a line of credit secured by the ASSETS for the mutual benefit of the partners. The proceeds of this line of credit shall be used to make such investments as may be acceptable to the PARTNERS.3.2 XXXX
XXXX agrees to structure, operate, and manage the PARTNERSHIP, to procure a line of credit secured by the ASSETS, and to arrange, execute and monitor all financial transactions as described herein for the mutual benefit of the PARTNERS. The PARTNERS agree that XXXX, as General Partner, shall have the legal authority and Power of Attorney to negotiate and execute binding contracts on behalf of the PARTNERSHIP for the purposes of and within the restrictions set forth in this AGREEMENT. XXXX agrees to safeguard, on a “best effort” basis and to the limit of its abilities, the integrity of the ASSETS and to return the ASSETS in its entirety and unencumbered to the UNDERWRITER at the completion of this AGREEMENT.
4. Management and Operation of Partnership
4.1 Line of Credit
XXXX shall, on a “best effort” basis, attempt to procure a credit line secured by the ASSETS. The proceeds derived from this line of credit (the “FUNDS”) shall be used by the PARTNERSHIP to engage in trading transactions as described herein for the mutual benefit of the PARTNERS. The PARTNERS agrees that the UNDERWRITER will provide XXXX with such access to the ASSETS as may be required to procure this line of credit. XXXX agrees that it will make a “best effort” attempt to secure a line of credit equal net to __% of the authenticated value of the ASSETS after minus Banking fee and interest. The Bank Guarantee from _______(issuing Bank) will be sent to ______________Bank (or other major Banks, if there is a need to change the bank due to any event requirement, the replacing bank will have the same or better) The PARTNERS further agrees that, upon the successful issuance of the line of credit, XXXX is authorized to make payments of ___% of the authenticated value of the assets to cover banking fees, interest.
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Location of FUNDS: The PARTNERS agrees to establish a joint account with Wells Fargo Bank, USA (We reserve the right to change the bank for the Short term program, but, the bank will be equivalent or better) and deposit the FUNDS into this account. The bank, the type of account, and the location must be acceptable to the PARTNERS. This bank account will be the PARTNERSHIP’S “HOME ACCOUNT”. The UNDERWRITER agrees to leave the principal amount of the FUNDS as set forth above on deposit in the HOME ACCOUNT and available to the PARTNERSHIP under the conditions and provisions set forth herein for the duration of the term of this AGREEMENT. The PARTNERS further agree that all profits will be deposited into the HOME ACCOUNT, and all payments and disbursements will be made from the HOME ACCOUNT.
4.2 Security of FUNDS
E.D.E.S acknowledges and agrees that its first and foremost responsibility to the UNDERWRITER is to maintain the security and integrity of the FUNDS. The UNDERWRITER requires, and _______ agrees, that the FUNDS and/or purchased bank instruments shall be held in the name of the PARTNERS at all times, and that ______ shall not take possession of, pledge, promise, encumber, or otherwise diminish the value of the FUNDS at any time except under the terms and conditions set forth herein.
4.3 Restricted Use of FUNDS
XXX shall make use of the FUNDS to generate earnings, dividends, profit sharing, and other returns for the PARTNERS (the “RETURNS”) by buying certain debentures and other financial instruments and re-selling them at a profit. Any and all RETURNS will be shared between the PARTNERS as set forth herein above. The PARTNERS understand and agree that _______, as General Partner, is restricted in the use of the FUNDS by the provisions set forth herein. _______ shall use the FUNDS only to buy and sell Senior Bank Debentures in the form of Medium Term Notes issued by major Western European or US banks (the “INSTRUMENTS”) in various denominations of US Dollars, Euros, or other currencies to be approved by the UNDERWRITER.
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4.4 Transactions
During the term of this AGREEMENT, the PARTNERS expect to participate in one or more “TRANSACTIONS” in which INSTRUMENTS may be bought and sold. Each TRANSACTION shall be governed by a “Purchase Contract” defining the purchase of INSTRUMENTS from a seller, and an “Exit Contract” defining the sale of INSTRUMENTS to a buyer. The PARTNERS agree that ______ shall have full authority to negotiate and bind all Purchase and Exit contracts on behalf of and for the mutual benefit of the PARTNERS.
4.5 Transaction Tranches
Each purchase and subsequent sale of an INSTRUMENT or group of INSTRUMENTS within a TRANSACTION shall be considered to be one trading “TRANCHE”. Each TRANCHE shall be completed (“settled”) when the FUNDS used to purchase the INSTRUMENTS along with any profits generated by the sale of the INSTRUMENTS are re-deposited in the HOME ACCOUNT. All TRANCHES shall be initiated from the HOME ACCOUNT and settled into the HOME ACCOUNT, excepting for the distribution of profits, costs, fees, and other expenses as set forth herein.
4.6 Returns and Costs
The PARTNERSHIP will distribute “RETURNS” earned by the completion of TRANCHES to the PARTNERS, and shall pay all fees, commissions, costs, and other expenses related to each TRANCHE at the successful conclusion and settlement of each TRANCHE.
Short Term Program:
To be announced precisely when fund is available. During this period of time, we recommend funds to stay for accumulation and only a very small portion of profit can be disbursed.
Long term Program:
a) Rate of Returns
_______ agrees not to engage in TRANSACTIONS in which it cannot reasonably expect to earn a profit. As of the date of execution of this agreement, _______ has full expectations of being able to earn a gross profit of up to 20% or better per TRANCHE
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Rate of Accrual
RETURNS shall be accrued to the PARTNERSHIP as TRANCHES are settled. _______ has expectations to achieve one or more TRANCHE settlements per banking day.
b) Frequency of Payments
RETURNS, fees, commissions, wire charges, and other expenses shall be paid by the PARTNERSHIP as TRANCHES are settled.
c) Ability to Achieve Results
XXXX attests and represents that on the date of execution of this AGREEMENT that it has the ability and full expectations of achieving the results defined by the terms and conditions of this Agreement.
d) Methodology of Payments
Payments shall be made via bank wire to the PARTNERS as each TRANCHE is settled. Full banking coordinates for the PARTNERS shall be exchanged upon the execution of this AGREEMENT.
4.7 Accountability
E.D.E.S shall provide the PARTNERS with monthly statements, delivered electronically via email, via facsimile, or via courier as requested by the PARTNERS. These statements shall detail the TRANCHES opened and settled, and the RETURNS accrued during the preceding month.
4.8 Records and Auditing
The FUNDS and all transactions completed in the operation of the PARTNERSHIP are to be recorded in books of account in accordance with accepted accounting procedures. These books are to be open for the inspection of each of the PARTNERS at all times.
5. The Contract Amount
The PARTNERS enter into this PARTNERSHIP with the intention and purpose of engaging in a total transaction value of at least $500,000,000,000.00 (five hundred billion US dollars) (the “CONTRACT AMOUNT”). Extensions to the CONTRACT AMOUNT may be possible with the permission and cooperation of all PARTNERS.
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6. Effective Date, Term, and Termination
6.1 Effective Date of the AGREEMENT
This AGREEMENT shall commence and become effective on the date on which all PARTNERS have executed it and a countersigned original has been delivered to all PARTNERS (the “EFFECTIVE DATE”). The PARTNERS understand and agree, however, that following the Effective Date of this AGREEMENT, XXXX, as General Partner, will execute contracts on behalf of the PARTNERSHIP with Third-Party providers and buyers of Medium Term Notes in volumes sufficient to satisfy the CONTRACT AMOUNT as set forth above. As of the date of execution of this AGREEMENT, XXXX attests that it has written offers in hand that have been delivered to XXXX by both providers and buyers in sufficient quantities to satisfy the CONTRACT AMOUNT. The PARTNERS understand and agree that XXXX has no control or authority over the providers and buyers, and that this AGREEMENT may therefore be terminated without prejudice or penalty by XXXX until such time as binding contracts have been executed between the PARTNERSHIP and the Third-Party providers and buyers sufficient to satisfy the CONTRACT AMOUNT.
6.2 Term of the AGREEMENT
This AGREEMENT shall remain in force until the total value of all TRANCHES meets or exceeds the CONTRACT AMOUNT, at which time the AGREEMENT shall be considered to have been “completed” unless extended by mutual consent of the PARTNERS. The PARTNERS understand and agree that once contracts have been established with Third-Party providers and buyers, the PARTNERS will be irrevocably committed to the terms and conditions of this AGREEMENT until the AGREEMENT has been completed as defined herein above.
6.3 Dissolution Upon Completion
Upon the completion of this AGREEMENT as set forth herein above, any and all residual RETURNS will be distributed to the PARTNERS, any and all residual expenses, fees, and other legitimate costs of doing business shall be paid by the PARTNERSHIP, and the entirety of the FUNDS shall be returned intact to the UNDERWRITER.
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6.4 Early Termination of the AGREEMENT
The PARTNERS understand and agree that upon execution of this AGREEMENT commitments will be made to, and contracts will be signed with, providers and purchasers of Medium Term Notes sufficient to satisfy the CONTRACT AMOUNT. The PARTNERS further understand and AGREE that once these commitments and contracts have been made with such Third-Parties, this AGREEMENT may not be terminated by the PARTNERS for any reason until the AGREEMENT has been completed as set forth above and that any inability to complete this AGREEMENT after it has been executed may expose the PARTNERS to criminal and/or civil prosecution. Noting in this AGREEMENT, however, shall be construed to prohibit XXXX from terminating this agreement without penalty prior to executing contracts with Third-Party providers and buyers as set forth above, or from terminating this contract at any time, and at its sole option, without penalty should a Third-Party provider or buyer fail to perform according to the terms and conditions of an executed purchase or sale agreement. Further, the PARTNERS agree that XXXX has the right to terminate this AGREEMENT without penalty should it be unsuccessful for whatever reason in procuring a suitable line of credit as defined above. Nothing in this AGREEMENT shall prevent a PARTNER from enforcing its rights by such remedies as may be available in lieu of termination.
7. Notices
All notices, consents, and demands under this AGREEMENT shall be in writing and may be delivered personally, sent by telegram, telex, air courier, or facsimile or may be forwarded by first-class registered or certified mail to the address for each party set forth below, or to such address as each party may from time to time specify by notice. Any notice delivered or sent by telegram, telex, or facsimile shall be deemed to have been given and received on the business day next following the date of delivery, but only if written proof of delivery can be produced. Any notice mailed as aforesaid shall be deemed to have been given and received on the fifth (5th) business day following the date it is posted, providing that if between the time of mailing and the actual receipt of the notice there shall be a mail strike, slowdown, labor dispute or other condition which might affect delivery of the notice by the mail, then the notice shall be effective only if actually delivered. Each party’s proper address shall be the address set forth below unless and until a party specified another address by written notice to the other party:
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XXXX________________
Name:________________
Address:______________
_____________________
Telephone:____________
Facsimile:_____________
UNDERWRITER
_______________________
__________, ____________
Telephone: _____________
Facsimile: ______________
8. Force Majeure
This Agreement is subject to the terms and conditions set forth by the International Commerce Commission regarding Force Majeure and Hardship and popularly known as the “ICC Force Majeure Clause 2003” and “ICC Hardship Clause 2003” as they are commonly applied to international banking and financial transactions. Further, XXXX will not be held responsible for the inability or failure to perform of any Third-Party not under its direct control.
9. Severability
If any provision of this AGREEMENT, or the application thereof to any person or circumstance, shall for any reason or to any extent be invalid or unenforceable, such invalidity or unenforceability shall not in any manner affect or render invalid or unenforceable the remainder of this AGREEMENT, and the application of that provision to other persons or circumstances shall not be affected but, rather, shall be enforced to the extent permitted by law.
10. Assign ability
Neither this AGREEMENT, nor any rights or obligations conferred hereunder may be assigned in whole or in part by either party without obtaining the prior written consent of the other party. XXXX reserves the right, however, to assign this AGREEMENT at its option to any company or legal entity entirely under its control.
11. Successors
This AGREEMENT shall extend to and be binding upon the heirs, personal representatives, successors, and assigns of the parties hereto.
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12. Warranty of Authority
The persons executing and delivering this AGREEMENT on behalf of the parties represent and warrant that each of them is duly authorized to do so and that the execution of this AGREEMENT is the lawful and voluntary act of the parties.
13. Modifications
It is agreed by and between the parties hereto that this AGREEMENT may be modified only by a written instrument signed by all of the parties.
14. Waiver of Breach
The failure of either party to enforce for any time or for any period of time any of the provisions of this AGREEMENT shall not be construed as a waiver of the right of such party thereafter to enforce each and every such provision.
15. Governing Law
This AGREEMENT, and any disputes hereunder, shall be governed by the laws of the United States and the State of California. Any controversy or claim arising out of or in relation to this Agreement, or breach hereof, shall be finally settled by arbitration in California, U.S.A
a) The arbitration shall be conducted before three arbitrators in accordance with the Rules of Arbitration and Conciliation of the International Chamber of Commerce then in effect.
b) The PARTNER or PARTNERS requesting arbitration shall appoint one arbitrator and the other PARTNER or PARTNERS in the position of defendant shall jointly appoint a second arbitrator within thirty (30) days after receipt of a demand for arbitration. The arbitrators shall be freely selected, and the PARTNERS shall not be limited to any prescribed list. The two arbitrators thus appointed shall, within thirty (30) days after both shall have been appointed, appoint a third arbitrator who shall preside over the arbitration proceedings.
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16. Costs and Attorneys Fees
In the event that either party institutes mediation or legal action for the enforcement of any right, obligation, provision, or covenant of this AGREEMENT, the prevailing party shall be entitled to a reasonable attorney fees in addition to costs of suit.
17. Counterparts
This AGREEMENT may be executed simultaneously in two or more counterparts, all of which together shall constitute one and the same instrument and when so signed shall be deemed to bear the date first written below.
18. Language and Translations
This AGREEMENT is written in the English language and executed in two counterparts, each of which shall be deemed an original. The English language text of the AGREEMENT shall prevail over any translation thereof.
19. Confidentiality
Except as required by law or as reasonably required in order to enable and execute the transactions contemplated herein, the PARTNERS agree to maintain the confidentiality of all information and data relating to the business of the PARTNERSHIP and each other, including, without limitation, economic, financial and/or personal information, disclosed, directly or indirectly, or disclosed by visual inspection, and shall not disclose such information and data to a third party without the prior written consent of the other PARTNERS
20. Entire Agreement
All of the terms and conditions of the AGREEMENT between the parties are contained herein, and no representations or inducements have been made other than those specifically set forth.
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IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and year first written above.
For XXXX Group For_____________ . (“UNDERWRITER”):
Signature ________________________ Signature ________________________
Name: __________________ Name:_____________________
Title: __________________ Title: ______________________
Date: __________________ Date: ______________________
Witnesses:
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PRIVATE PLACEMENT PROGRAMS
PRINCIPLES & PRACTICES______________________________________
PRINCIPLES OF ISSUES AND OF BANK DOCUMENT MARKETS
PRIVATE PLACEMENT FOR HIGH RETURN
by Prof.Dr.NGUYEN PHUC LIEN, Economist
(Published in 1999. Reviewed 25/12/2003)
The people tell that the Private Placement has realized very high return (‘’miraculous profit’’). Some Clients or traditional Bankers smile in saying: ‘’ That’s miracle! There is no Père Noel in finances, mostly in Banks !’’. Some people are often repeating: ‘’That’s FED ! We have to follow FED’s Rules ! FED can give Paradise but FED may become Lucifer !’’.
In this document, we try to reply theorically to these opinions:
(a) MIRACULOUS PROFIT IS NOT A MIRACLE
(b) MECHANISM OF ISSUANCE & DISTRIBUTION CHANNELS OF FED
A. MIRACULOUS PROFIT IS NOT A MIRACLE
High profit depends on three factors: amount of capital, interest rate and time of investment. HYIP doesn't make miracle to have high interest rate but utilizes readily feasible banking techniques to realize trades in normal conditions of market interest rates. There is no miracle if we understand these banking techniques. Indeed, the people comment that this is a miracle because they compare the hign profit with a very small amount of initial investment.
Again, three contributing factors to profits are: interest rate, capital and time of investment. Interest rate in HYIP is the rate received by each Trade of bank intrumentss. In commercial competitive market, it's absolutely not frequent to obtain exceptional high price for trades. Bank Trader in HYIP doesn't take much attention in activating this aspect of high prices.
Bank Traders particularly manipulate financial techniques to act on two following contributing factors to profits: the amount of capital and the time of investment. The technique of financial multiplier is used to swell the capital reserved to a precise trade; the technique of reduction of time for realization of each trade gives the possibility to obtain profit from the real time of investment as per from a very long period of investing funds in the future.
1. Technique of swelling capital
Please take example of "Snowball". A initial small snowball rolls down a slope and becomes a bigger snowball. By the same way, an Investor puts an initial small amount of funds. Bank Trader will make it bigger to invest in HYIP. The technique of multiplication of the initial investment consists of issuing Bank Guarantee, then discounting it; issuing new Bank Guarantee, then new discounting of this one;...this rotation is repeated many times. That's the method of swelling capital. The multiplication is realized by two steps:
a. Leasing of bigger amount of funds to invest
With a small amount of initial investment, for example 200'000, the Program Manager can arrange a leasing of a bigger amount, for example 1'000'000 for investment. This is the first swelling of capital. Other swellings are realized as per in the following step.
b. Utilization of Financial Multiplier and of the repetition rifle of issuing and discounting Bank Guarantee to swell Funds
(i) Financial Multiplier
The economic Keynesian Multiplier can be applied to monetary circulation through banking system. That's the Financial Multiplier. For example, a Commercial Bank receives a cash 100'000 and it must keep 20% in permanent deposit. Then this Commercial Bank can liberate 80% as loan into circulation. The Bank knows that it will receive again cash from circulation, then can liberate 80% as loan. Total amount through repetition of liberating bank notes in circulation is equivalent to initially received cash 100'000 multiplied by 5 (k = 1/(1-80%) = 5 : Financial Multiplier). If we compute the profit with interest rate 6% applied to total credit 500'000 (100'000 x 5), it will be 30'000 a year. If we think only of the initial capital 100'000, this profit is 30%. It's HIGH YIELD, with normal interest rate, but with a total capital swollen by Financial Multiplier
1 1
k = ----------- = ----- = 5
1 - 80% 20%
1
100'000 x k = 100'000 x ----------- = 100'000 x 5 = 500'000
1 - 80%
500'000 x 6% = 30'000 --------------> 30'000 / 100'000 = 30%
(ii) Financial Multiplier and repetition of issuing, discounting Bank Guarantee.
Consider example of investing initial amount 100'000 and compute swollen capital. Each "Trade" consists of a cycle of buying and selling bank instruments to get profit. Capital and Profit are ensured by bank security instruments and these instruments can be discounted to reenter into following trade cycle of Program, i.e. Issuing Bank Guarantee, then Discounting it, for 90% for example, to add capital to amount invested in new trade cycle. The repetition of cycle of Issuing, Discounting Bank Guarantee will swell the initial amount invested into Program by technique of Financial Multiplier computed in following table
TRADE DISCOUNTING, FOR 90%, BANK INSTRUMENT OF PRE- ADDED
CYCLE VIOUS CYCLE TO ADD CAPITAL INTO CURRENT CYCLE INVESTMENT
--------- -------------------------------------------------------------------------- -------------------
0
Period1 100'000x0.9 = 100'000 100'000
0 1 1
Period2 100'000x0.9=(100'000x0.9 )x0.9 = 100'000x0.9 = 90'000 90'000
1 1 2
Period3 90'000x0.9=(100'000x0.9 )x0.9 = 100'000x0.9 = 81'000 81'000
2 1 3
Period4 81'000x0.9=(100'000x0.9 )x0.9 = 100'000x0.9 = 72'900 72'900
3 1 4
Period5 72'900x0.9=(100'000x0.9 )x0.9 = 100'000x0.9 = 65'610 65'610
4 1 5
Period6 65'610x0.9=(100'000x0.9 )x0.9 = 100'000x0.9 = 59'049 59'049
............ ........................................... = ..... ......................
37 1 38
Period39 ...............=(100'000x0.9 )x0.9 = 100'000x0.9 =........... .......................
38 1 39
Period40 ...............=(100'000x0.9 )x0.9 = 100'000x0.9 =........... .......................
---------- ---------------------------------------------------------- ------------ ------------
TOAL SUM OF 0 1 2 3 4 5 38 39
INVESTMENT = 100'000 (0.9 + 0.9 +0.9 +0.9 +0.9 +0.9 +...+0.9 +0.9 ) x ?
Consider:
40 40
x - a 0 39 1 38 2 37 3 36 4 35 38 1 39 0
-------- = a x + a x + a x + a x + a x +...+ a x + a x
x - a
If x = 1 and a = 90% = 0.9, then:
40 40
1 - 0.9 0 1 2 3 4 38 39 1 - 0 1
------------- = 0.9 + 0.9 + 0.9 + 0.9 + 0.9 +...+ 0.9 + 0.9 = -------- = ----- = 10 = k
1 - 0.9 1-0.9 1-0.9
TOTAL OF SWOLLEN CAPITAL INVESTED = X = 100'000 x 10 = 1'000'000
In summary, the swelling of amount of initial investment concerns: (i) utilization of initial small amount to lease a bigger sum; (ii) then, utilization of technique of Financial Multiplier and repetition of Issuing & Discounting Bank Instruments in order to swell the leased bigger sum. It's this activating on amount invested that explains HIGH YIELD in normal conditions of market interest rate. There is no miracle
2. Technique of speed acceleration of trade
The third factor which influences Profit is the time of investment. The longer period of investment will give higher Profit. For example with annual interest rate 6%, we must invest 100 to get profit 6. If we want to have 12, me must invest 100 during 2 years. If we invest 100 during 40 years with 6% as fixed annual interest rate, we will get total profit 240.
Each year is called an investment cycle. The banking technique is to realize this investment cycle during a shorter period by speed acceleration of its realization. Bank Trader accelerates the speed of buying and selling bank instruments with shortest time, for example during 2, 3 days or one week. If we consider one week with interest rate 6% as an investment cycle when we invest 100, we will get 6 as profit for one week. If 40 investment cycles are realized during one year, we will get 240 as profit for one year.
Because of speed acceleration of investment cycle, each week is considered as one year of investment realized under normal conditions and consequently if the Program realizes 40 trade cycles during one year, the total profit is equivalent to that from investment during the whole period of 40 normal years. This aspect explains the very high profit as a miracle. In fact, this profit is of normal conditions, but because of speed acceleration trade cycle, i.e. the reduction of real time of investment, the profit equivalent to that of investment during 40 years is realized only in one year. It's not correct to say "high yield". Indeed, it's better to say that this is a normal profit realized during a miraculously short time of one year.
Bank Trader has enough techniques to accelerate speed of trade rotation, i.e. to reduce miraculously the time of realization of a trade cycle. Indeed, if this is a commodity trade, a dealer cannot reduce enormously the time of transaction cycle because of physical conditions of commodity, of its transport...But for a transaction of bank instruments, it's perfectly feasible the reduction of time of realization. This commerce is not under physical conditions as per of those of commodity. Bank Trader needs only some minutes to sign and to send electronic informations...for the realization of a transaction cycle.
In summary, the speed acceleration is perfectly realized for a trade cycle with purpose of obtaining profit during very short time equivalent to profit during a very long period under normal market conditions. 40 weeks of investment are equivalent to 40 years under normal conditions of inverstment. The normal profit from investment during 40 years is obtained during 40 weeks.
All the above Techniques combined with the Mechanism of Issuance and the Application of ‘’Fractional Lending’’ in FED’s Credits on Off-Market show that the MIRACULOUS PROFIT OF PRIVATE PLACEMENT IS ABSOLUTELY NOT A MIRACLE !
B. MECHANISM OF ISSUANCE & DISTRIBUTION CHANNELS OF FED
The above highly profitable Trading Program exists as a result of the United States FEDERAL RESERVE (FED) practice of securing short term to medium-term liquidity outside of customary On-Market channels. The FED BANK has registered a small number of high volume Traders to facilitate and maintain a secure, Private Placement Capital Market to fund its liquidity requirements. The FED Contracts with Europe’s most Credit worthy financial Institutions to trade large blocks of their Corporate Bank Paper, which are then distributed through the Federal Reserve’s Private Capital Market. In return, these European Banks receive ledger entry Federal Reserve Credits, that can be used as cash equivalent Assets. In this Trading, all issuance of Bank Paper and FED Credits are maintained Off-Market and Off-Balance Sheet.
The Banks Benefit by using the Credits to increase their ‘’Fractional Lending’’ capabilities. Fractional Lending is standard in all commercial bank lending and simply means that over time, Banks are allowed to lend more money than they actually have as reserves on their Balance Sheets (Please see the above paragraphs concerning Financial Multiplier, Technique of swelling Capital, Acceleration of Trades).
Federal Regulations in all Western Countries set the Ratios between Bank Assets and Loan outstanding. In most Countries the Ratio for Cash or Cash Equivalents (Liquid Assets) to Loans outstanding, is 6 to 12 times Liquid Assets, i.e. with USD.1 cash, they can give for loans USD.12; with USD.1’000’000, the loans outstanding can be USD.12’000’000. The FED Credit mechanism described above provides an Off-Market, relatively inexpensive, form to increase Liquid Assets, which then allow Banks to use a FED Credit as reserves and increase their lending capacity. That is the swollen capital in circulation regarding the initial small cash amount.
For example, if a Bank receives a FED Credit of USD.8’000’000. It can borrow from the FED discount desk 10 times this amount , i.e USD.80’000’000; and then lend it out to its customers at a 5% profit, i.e. USD.4’000’000 by operation (Trade). If we divide the profit USD.4’000’000 by the initial amount USD.8’000’000, the percent of profit will be 50% by operation. This operation can be repeated several times during a short period. The very High Yield is explained, not by the the interest rate of each operation, but by the swollen Credits outstanding and by the repetition several times of this swollen Capital during a short period. With 5 operations during a week for the swollen amount USD.80’000’000 from the initial FED Credit USD.8’000’000 and only with normal Interest Rate 5%, the Profit will be 500% weekly at total. This is not a miracle !
Because of the Off-Balance Sheet nature of these Credits, the Banks can make significant profits by using only the good faith and credit of their Bank and the FED Credit, without the security of Traditional Capital Markets. If a banker knows by heart only these traditional Capital Markets, he can criticize this ‘’miraculous profit’’ and advises negatively the investors who want to enter into Private Placement HYIP !
Given the limited liability and significant profit making potential for the bank created by this ledger credit mechanism, the FED gives a Credit and Contracts to repay an amount which is a steep discount (15% to 40%, depending on the term of the Paper) from the stated maturity value of the Bank Instrument, issued by the Bank through the FED’s Private Capital Market Profits from Bank core lending Activities easily cover this Discount and provide a substantial Profit to the Bank through the Banks use of Fractional Lending (These points have been explained in the previous Paragraphs).
The Benefit to the Federal Reserve is that it has the interest free use of the proceeds from the sale of the European Bank Instruments, through maturity of those Papers. Due to the Off-Market nature of the proceeds, these funds can be used for any purpose the FED chooses. This point explains the necessity of introducing to FED the useful economic, humanitarian Projects. As with the Banks, the FED issues Credits to the Banks using only the good faith and credit of the United States Government. This good faith ledger entry credit is acceptable to the Banks as the only means by which the proceeds from the sale of their Bank Instruments are secured. In the future, we may see this faith and credit from European Union Reserve.
This mechanism also allows the FED (maybe EUR in future) to avoid the security associated with the common practice (pratice of ‘’traditional’’ bankers !) of the On-Market borrowing through the issuance of Treasury Bonds or the printing of Cash. Repayment of these Credits upon maturity is most often done through issuance of new Bank Instruments, otherwise known as ‘’Rolling Over’’. New Issuance of Bank Papers will succeed Old Issuance of Bank Instruments at their maturity without showing Cash.
This Off-Market, PRIVATE PLACEMENT, Capital Market maintained by the FED thrives due to the fact that the FED regulated institutional Investors (Insurance Companies, Pension Funds, etc.) which are the major source for all Capital Investment, cannot fund capital into securities which have not yet been issued. That is the management of the future capital. Private Investors however, are not restricted in this manner. The FED mechanism requires funds to be escrowed prior to the issuance of the Bank Paper. In effect, each Issuance of Bank Paper through the FED requires Bridge Financing. The same requirement exists on all ON-Market Issuances on Wall Street where the Investment Banks, in Groups, use their Capital to underwrite and fund Issues. Each Individual/Company Investor contributes to the FED Issuance. The securities are often then resold and distributed through normal retail Channels to Institutional Investors and Individuals. In the case of the FED’s Private Market, high net worth Individuals serve as the Underwriters, pooled together by TRADERS or PROGRAM MANAGERS. These Individuals exist in the FED’s Private Channels of distribution. They purchase the Bank Paper at the HIGHEST POSSIBLE DISCOUNT offered by the FED through their TRADER NEWORK and resell it to the Institutional Buyers at the LESSER DISCOUNT. This explains the high returns.
As with the Investment Bankers and their On-Market Issues, this Private FED Market generates a significant Trading Spread. This spread, typically 7% to 25%, depending on the term of the Bank Paper being TRADED, is the essence and source of the SUPERIOR PROFITS, ‘’MIRACULOUSLY HIGH YIELD’’. Succesfull TRADERS can utilize the same pool of funds to purchase and resell blocks of Bank Paper as often as two or five times per week.
Bank Paper is issued in minimum amounts of USD.10’000’000. Investment Funds below USD.10’000’000 can only be invested if a Trader or Program Manager is willing to accumulate Funds to create a pool of USD.10’000’000 or larger. Because of the Issuance of Bank Paper at minimum level USD.10’000’000, the Investors with amount below USD.10’000’000 have often to wait for the delay of entry, while the Investor from USD.10’000’000 and up can enter easily into the Program.
Prof.Dr.NGUYEN PHUC LIEN, Economist
Licence in Mathematical Economy (Econometry)
Graduate at University in Computer Science
Doctor in Economy/Finance (Stock Exchange Market)
HYIP WAS ALREADY A POPULAR FINANCIAL METHOD
IN POOR COUNTRIES
HIGH YIELD INVESTMENT IS NOT A NEW INVENTION OF A SELECTED GROUP OF HIGHEST BANKERS, BUT THIS WAS A POPULAR METHOD PRACTISED IN THE CORNER OF A VEGETABLE MARKET LONG TIME AGO IN POOR COUNTRIES.
By Prof.Dr.NGUYEN PHUC LIEN, Economist
Geneva 08 February 2004
This history of High Yield Investment Program is real. Readers can ask for confirmation from any Vietnamese people who knew the Ben Thanh Market in Saigon. This is the history of Mr.CHA GIA (from India or Pakistan) who lends cash to poor women buying and selling vegetables in this Market.
The Banker CHA GIA (from India or Pakistan)
This Banker has small capital, for example $ 100. In Ben Thanh Market , there are very poor women who have to take care alone of her 4 children after the death of her husband in the Vietnam War. They sell soups along the roads or vegetables in the Market early in the morning. These poor women have no capital at all. The Banker Cha Gia know them very well and personally.
This Banker comes every day to a corner of the Market. In the morning, he lends $100 to a woman who sells vegetables. At noon, this woman returns $100 to him, plus $5 interest. In the afternoon, he lends the same amount $100 to other woman who sells soups along the roads. About 18h00, this woman returns to him the capital $100 plus $5 of interest .
The Banker Cha Gia realizes 2 lending operations per day. His net profit is $10 per day. If he works 5 days (5 banking days) per week, his profit is $50 per week, i.e. he takes 50% per week.
For a regular HYIP Program, the Trader realizes trading operations during 40 weeks. For our Banker Cha Gia, during 40 weeks per year, his profit per year will be :
$50 x 40 weeks = $2’000.00
It means that our Banker Cha Gia can realize a Profit of 2’000% per year. That is really the High Yield Investment Program (HYIP) of our Banker Cha Gia.
If you go to Banks, for example UBS, DEUTSCH BANK, CITIBANK, BANK OF AMERICA… and you ask their Junior Bankers if they can give you a Profit 50% per year, they will declare immediately that it is impossible !!!
But the above example of our Banker Cha Gia shows really that the realization of 2000% profit is possible.
Explanation of the Possibility of HYIP
The Junior Bankers from UBS, DEUTSCH BANK, CITIBANK… declared the impossibility of realizing 50% of profit because they have habitude of thinking of interest rate per year, for example 5%, 6%... per year. They cannot imagine that our Banker Cha Gia can realize interest rate 5% daily, even 10% per day. Each day of our Banker Cha Gia is equivalent to one year of the Bankers in UBS, CITIBANK…When our Banker Cha Gia works during 20 days per month, the profit will be equivalent to the Bankers in UBS…who have to work during 20 years.
The Profit is the result of an EXPLOITATION CYCLE. Each turnover (rotation) of an exploitation cycle will give a profit or loss. An exploitation cycle can be finalized during two years, one year, one month, one week, one day or one hour.
In order to get high profit during a fixed period, we have to repeat many times the exploitation cycle, i.e. we have to reduce the time of realizing a cycle. That is the principle of SPEED ACCELERATION of exploitation cycle.
A countryman cannot accelerate the cycle of season of tomato. In industry, the acceleration depends on physic condions of production.
In Banks, the exploitation cycle of BUY/SELL bank instruments can be done with very short time. Each exploitation cycle, banking operation, can be finalized during one day or one hour.
In trading Program, i.e. the commerce of Financial Instruments, the Trader can realize 3-5 trading Operations per day. This Speed Acceleration of Rotation (Turnover) of exploitation cycle allows the Trader to obtain very high return per day. When you ask the Trader how much he can give you the profit per week, per month, he will reply to you that it depends on how many trading operations he can realize per day.
Actually, with the rapidity of the electronic communication and with the screening the financial instruments, the Traders and Bankers can accelerate better the speed of realizing a trading operation. Consequently, the Profit becomes higher during a fixed period of Program.
Conclusion: our above Banker Cha Gia can realize two exploitation cycles (two operations) per day and he gets 2000% of profit per year. The Traders and Bankers in UBS, CITIBANK…, with their quickness of electronic communication and with the financial products ready on screen, can realize better than our Banker Cha Gia the speed acceleration of operations, and consequently a higher Profit.
Prof.Dr.NGUYEN PHUC LIEN, Economist
BANK DEBENTURE TRADING
By Mr.Harold MILLER,
Financier, California, USA ,
Director of OXFORD TRADING GROUP LLC
The following basic overview was written for presentation to a major U.S. Corporation under the direction of it's Board of Directors for educational purposes.
The mechanics of SLCs and Bank Guarantees
Please note: Prime Bank Guarantees or SLCs (Standby Letters of Credit) are short hand terms and are trade jargon, the proper name for such is Bank Debentures.
4.Background
The driving force behind the financial instruments under discussion in this paper is the U.S. government through its monetary agency, the Federal Reserve Board. The U.S. dollar is the basis of the world's liquidity system since all other currencies base their exchange rate on it. Quite simply this means that the U.S. is the world's central banker. As the world's central banker, the U.S. has an enormous responsibility to maintain stability in the world's monetary system. As well, the U.S. as the most powerful nation has accepted the role as the champion and promoter of democracy in all of its endeavors. While the U.S. has many tools to do this, one in particular is relevant for the purposes of this discussion. The Federal Reserve Board (Fed) uses two financial instruments to control and utilize the amount of U.S. dollars in circulation internationally: Standby Letters of Credit (SLC) and Bank Guarantees (BG). The Fed's domestic tools to control credit creation are interest rate policy, open market operations, reserve ratio policy and moral persuasion. In the domestic context, these tools are not always as effective as the Fed would like them to be. Part of the reason for the less than perfect effectiveness is due to the substantial stock of U.S. dollars in foreign jurisdictions. Several of the Fed's domestic tools cannot be used by it in other countries. For examples, the Fed cannot change foreign reserve ratios. Furthermore, a significant amount of credit creation occurs in U.S. dollars in foreign countries, particularly in the Eurodollar market. The Fed cannot control the credit creation in foreign markets through its use of domestic policy instruments. Internationally the currency of choice is the U.S. dollar as it is considered the safest currency, especially in times of political crisis. Consequently those holding the dollar do so for reasons which are less sensitive to economic stimuli. Because foreign banks readily accept U.S. dollar deposits, those funds, which in the domestic context are the basis of M1 money supply, in the foreign context, they act more like the near money features of M3. This means they are infinitely more difficult to control. The "offshore market" has grown substantially in the last two decades for a number of reasons. First, huge quantities of U.S. dollars associated with the drug trade slosh around the international monetary system, and second, wealthy individuals concerned about high taxes and preserving their wealth opt to keep their assets in offshore tax havens. This significant stock of U.S. dollars cannot be effectively controlled by the U.S. with its normal domestic policy tools. Finally, currency futures markets can be another difficult area to control because of the substantial amount of leverage that is available. For example, for as little as $1500 dollars, it is possible to short or go long for over $150,000 U.S. dollars versus the D Mark. All other major currencies have a similar leverage on the dollar. This means that someone with $1500 U.S. dollars can take the other side in a Fed move to stabilize the currency. Since the currency does not have to be delivered, but the contracts are rolled near the expiry date, it is possible to create substantial pressure on the dollar in either direction. (The Hunts learned this the hard way when they tried to corner the world silver market.) To control U.S. dollars outside the U.S., the Fed resorts to Standby Letters of Credit or, as they are popularly known, SLCs. In its more familiar domestic form, the SLC is a financial guarantee or performance bond issued by a bank for a fee on behalf of a customer that wishes to borrow funds but in unable to do so cheaply in credit markets. A bank guarantees the borrower's financial performance to the lender by issuing the SLC. Since the bank is in a better position to assess credit risk and demand collateral, the issuance of this form of guarantee is a natural service that a bank provides.
In the international markets the use of SLCs is somewhat different. It simply is a money-raising device where the financial guarantee is almost meaningless. Banks issue these SLCs on behalf of the Fed; in other words, the Fed is the customer of the bank. Obviously there is no credit risk here. The net proceeds from the funds raised are immediately wired to the Fed. Using this method, the Fed can reduce the U.S. dollars in circulation in foreign jurisdictions.
Using a different method, the large stock of expatriated dollars is employed by the Fed to promote U.S. foreign policy. For example, during the G7 meeting in Tokyo in April of 1993, the U.S. committed financial aid to Boris Yeltzin to the tune of $6billion. These funds do not come form the U.S. Treasury, nor is the merit of the loan debated in the U.S. Congress. Instead, the U.S. taps the international pool of U.S. dollars through an instrument called a Bank Guarantee (BG). Essentially the instrument has the features of an SLC except it is longer dated with 10 and 20 year maturities. Unlike SLCs which sell at a discount and bear no interest, BGs bear a coupon payable annually in arrears. Like the SLC, it is a form of guarantee ensuring the lender will receive interest as is due and be repaid the principal upon maturity. It is important that the U.S. has these tools to control the dollars that increasingly grow off its borders. The Fed operates its currency stabilization so effectively through the use of SLCs that it seldom resorts to intervening in the foreign exchange markets. Rather than the U.S. government tapping the domestic savings pool to assist foreign governments, it is able to tap the international pool of expatriated U.S. dollars that leak away from its shores in hundreds of millions daily
2. The institutional structure of the system
A number of problems must be overcome to make the structure work. Inevitably, the offshore U.S. dollars find their way into the international banking system by way of deposits. Therefore, banks must be the main buyers of any financial instruments that the Fed causes to be issued. However, the rules of the Bank of International Settlement (BIS) prohibit banks from buying the newly issued debt instruments from each other directly. This prohibition exists for obvious reasons. If banks were allowed to fund one another, the probability of system-wide bank failure would be increased. This system of funding is not intended to support weak banks; in fact, the opposite objective is the goal. Therefore, a methodology has been constructed that allows banks to buy each other's newly issued paper.
BIS rules do not prohibit banks from owning other banks' financial obligations as long as they are not purchased from another bank directly, but instead are purchased in the secondary market. The Fed supports a group of intermediaries that have substantial available cash reserves. These intermediaries purchase paper from issuing banks and almost always immediately resell it to other banks. These intermediaries are called "commitment holders."
The Federal Reserve board "licenses" a small number of commitment holders to participate in a quiet international monetary policy. These commitment holders are identified by confidential, Fed-issued, registration numbers. These numbers are revealed under extremely controlled circumstances, because once revealed, a knowledgeable individual could cause paper to be issued. The commitment holders are few in number, however they are essential to the smooth functioning of the process. Commitment holders often forge relationships with other sources of funds. These relationships are called sub-commitments.
Holding a commitment entails a number of conditions which are extremely important to maintain. First and foremost, there is a demand for utter secrecy. Second, the commitment holder must be able to quickly produce large sums of U.S. dollars, generally in the billions. This explains why commitment holders are prepared to take on sub-licensees to ensure a large supply of readily available funds. Finally, this is a "funds first" business. No one can buy issued Paper on credit. To ensure this happens and not waste time, a commitment holder will not initiate a discussion with anyone unless they can prove cash funds of high quality security of at least 100 million U.S. dollars.
The Fed, as well, identifies a tier of high quality banks, usually in the top 100, which it authorizes to deal in the paper. Criteria for being on the Fed's list would include strength in the normal banking ratios as well as countries in which the Fed desires to be active. It is evident that the largest supply of international U.S. dollars is in Europe, which explains the dominance of European banks on the Fed list.
Another aspect of this fund raising process is the fact that it is conducted entirely off the balance sheets of issuing banks. Both instruments are guarantees and as such, represent contingent liabilities. As contingent liabilities, they are not posted to the balance sheet. However, they do require a risk-adjusted amount of capital reserve as prescribed by BIS rules. By keeping the funding instruments off balance sheets, there is little, if any, disruption of normal financing activities of the banks.
5. Issuing paper
The Federal Reserve decides which banks will issue paper, what kind and how much at any point in time. The United Nations and the World Bank have similar authority with PBGs, but they too must coordinate with the Fed.
A commitment holder and a bank work together to operate a trading program. The commitment holder is the source of funds. It establishes lists of banks from which it will accept paper. The lists reflect the preferences of the owners of the funds. Obviously, the strongest banks will appear on the lists with the highest frequency. This causes them to benefit the most from this activity, The strongest banks attract the commitment holders to operate the trading programs within their establishments.
Banks do the actual trading. They inquire through the Fed to determine who is issuing instruments. They are also informed about the banks that wish to acquire paper. They arrange the trades, verify and confirm the securities and clear the trades. The commitment holder is an integral part of the process although it does not have to be present to make it function. The commitment holder simply must leave the required amount of funds at the trading bank in a custody account after all the procedures have been properly executed.
The commitment holder provides the source of funds which is used to purchase the initial issue of paper and immediately resells it to another bank. There is no room in the system for anyone without funds. This is a principal to principal (bank to bank) business only. The trading bank executes the trades and finds buyers for issued paper. Outsiders can access the system only by finding a commitment holder and lodging funds with it or with one of its sub-licenses. The commitment holder spends most of its time finding "investors."
4. Why the yields are so high
As of the writing of this paper, SLCs were yielding approximately 13.7% and 10 year BGs 11.7%. One year U.S. T-bills were yielding 8.49% and 10 year Treasuries were yielding 5.78%. How are these extraordinary yields accounted for in an investment that does not appear to be intrinsically risky?There are several factors contributing to this market phenomenon. The international market for U.S. funds is extremely competitive. For example, there are several countries whose desire for U.S. dollars is so high that they will pay annual yields of 20% to 25%, make monthly interest payments in U.S. dollars and issue debentures whose terms do not exceed one year. These are countries whose risk profile is high even though there is no record of default on their obligations. These borrowers set the benchmark at the high end of the yield spectrum.
At the other end of the spectrum are very low risk sovereign issuers which are able to attract funds at rates competitive wit U.S. treasuries.
Earlier it was explained how the institutional side of this process functions. It was pointed out that when an SLC is issued by a foreign bank on behalf of the Fed, it had to establish a capital reserve. Recent changes to BIS rules require off balance sheet entries to be included in the computation of bank assets and capital adequacy ratios. Furthermore, these assets and all other assets must be weighted to reflect their overall risk. Capital adequacy ratios are now all risk adjusted.
SLCs fall into the 100% credit conversion factor rating to convert the off balance sheet item to an on balance sheet equivalent. For there the converted SLC is risk-rated. SLCs, which are the subject of this paper, fall into the 0% risk weight category. Consequently, every dollar of SLC exposure has no risk-weighted asset equivalent. If banking guidelines require the ration of total risk weighted assets not to fall below 8%, then at the margin, the bank would have to reserve capital of 8cents for every dollar of SLC exposure. If an SLC of $100 million is issued, $8 million of capital must be set aside.
In reality, the capital requirements are not so onerous because there are a number of other factors at work that lower the marginal cost of capital utilization. For purposes of discussion, let us assume this marginal cost of capital utilization is 4%.This is what the issuing bank would demand from the Fed to issue SLCs on its behalf. Therefore, if the purchasing bank is paying 92% of face value for an SLC, the selling bank will retain 4 points for itself to cover its reserve requirements by remitting 88% of face value to the Fed. The issuing bank will also load in a charge for providing the service which could be up to 2 points. As we shall see, the banks are paid their fee at maturity or redemption.
Next there needs to be a yield spread which will motivate large sums of capital to sit in a custody account in U.S. dollars. The spread earned by the owners of capital and the commitment holder could equal another 4 points. This 4 point spread would reflect the costs of fund raising and the economic rent on the capital. The following table summarizes this discussion.
% of Face Value Yield Spread Earned Allocation
Issue Price by Selling Bank 84.00 18.0% 6 points 4 pts. to capital
2 pts. to fee
Purchase Price by
Commitment Holder 90.00 11.1% 4 points 2 pts. to holder
2 pts. to investor
Purchase Price by
Buying Bank 94.00 6.4%
Market Price Equivalent
U.S. Treasury 96.60 3.5%
The figures in the tale are not precise, but they are close enough to give a general idea of how the yields work. The issue price yield is a whopping 19% which is what most observers focus on. However, no one earns this maximum yield. When the bank sells the SLC to the commitment holder, it receives 90% of face. If the face value were $100 million, it would receive $90 million. It sends $86 million to the Fed. At this point the yield is 11.1%. The commitment holder sells the note to the purchasing bank for $4 million. At this point the yield has fallen to 6.4% for the purchasing bank. The equivalent U.S. treasury yield is 3.5%. Enough excess yield remains so that the purchasing bank could profitably sell the note which would cause the yield to almost match market yield.
When the note matures, the Fed repays the issuing bank $98 million. Because the issuing bank needed $4 million for capital, it retained $4 million from the amount it sold the note for before sending the rest to the Fed. Since it is charging $2 million for the service, the Fed sends it back $98 million instead of $102 million. Remember, when the note is repaid, the $4 million in capital is released back to the Fed.
The next question is why would the Fed be interested in paying these yields. First, it is not as expensive as it might appear. As noted, when the SLC matures, the capital reserve is released. In other words, the Fed gets $4 million back. More importantly, the value of the process to the Fed should be clearly understood.
Any country which is attempting to stabilize its currency implements one or both of the following policies. The first line of attack is to manipulate interest rates to increase rates to increase or decrease the flow of its currency by altering final demand. If speculation becomes too powerful, which it often does, the next line of attack is to intervene in the currency market by supplying the excess demand or by removing the excess supply. Changing interest rates can be disruptive enough but once the speculators smell a weakening or strengthening currency, it becomes very expensive to smooth a rapid adjustment in values.
The U.S. dollar is the base currency of global commerce. Speculation could occur at a rate that would be mind boggling. The cost to the global economy would be significant, let alone the cost to the Fed of intervention. From this perspective, the manner in which the Fed conducts its activities probably is not expensive. There are countless examples where a central bank has announced it will defend its currency and $15 billion later it gives up as Britain did when it pulled out of the ERM in1993. That $15 billion goes straight into the pockets of the speculators.The only perhaps negative aspect of this system is that the Fed is reliant on a group of fund raisers called commitment holders who grow very rich from the service they provide. But this is the only way the Fed can keep the process very confidential and highly selective.
There is an analog in the public markets. NYSE market makers or specialists are a very select club which is extremely difficult to join. Market makers are charged with the responsibility of making a market in their particular stock to maintain the balance between its demand and supply. They are given a monopoly on market order flow information upon which there is no infringement. Market makers bear risk but it is one which most of the time is easily managed. Market making firms have the highest return on capital of any firms involved in the market.
Commitment holders are market makers as well, though of a slightly different sort. They do not bear much risk in making a market. Their "risk" lies in their ability to gather huge amounts of U.S. dollars because unlike equity market makers, they cannot leverage their capital.
The final question is, why does the Fed not issue securities directly to these banks to attract their dollar holdings? first the Fed is not empowered to issue securities; only the U.S. treasury Department and other agencies guaranteed by the U.S. Government can do that. Secondly, selling bonds would be negatively perceived since they are generally used for deficit financing. This process works as well as it does because it is entirely out of sight.
It should be evident how monetary policy (exchange policy) can be conducted. Only the issuance of an SLC has been discussed so far. The issuance of an SLC is a fiscal move that bids up the price of the dollar. If the Fed were interested, however, in injecting liquidity into the system, it simply repurchases outstanding SLCs in the countries where it desires to lower the exchange value of the dollar. We could call it a "closed" market operation. The domestic analog of this foreign monetary policy is an open market operation.
Bank Guarantees (BG) are also used in similar ways. They represent a financial guarantee and therefore a contingent liability. Unlike SLCs, BGs are not used for currency operations. These instruments support loans to countries and to development agencies which fund projects in LDCs. When a bank issues a BG, the net proceeds go to the source of the funding commitment.
While BGs are issued at a deeper discount than SLCs, they in fact have a lower annual yield. The apparent deeper discount is caused by the fact the BGs bear interest and are longer dated securities. For example, 1 point of discount on an SLC equals1.3 points of annual yield, while 1 point of discount on a BG equals .6 points of annual yield. In other words, it takes a larger change in the discount of a BG to have the same effect on yield as an SLC. The economic consequences with a BG are quite different than those associated with an SLC. Dollars are not removed from the economic system. They instead flow to areas where there is a perceived need to be philanthropic, which is no doubt motivated by political considerations. Once a project has been initiated, the recipient of funds begins to import materials and finished products which increases the amount of trade taking place which in turn expands production. Inevitably, a large share of these dollars is spent in the U.S. The BG then is a method whereby the U.S. can direct the use of its currency without explicitly saying that it is doing so. The alternative would be to make it a budgetary expenditure which would be debated in Congress. If it passed successfully through that process, it would add to the deficit of the country. Such an expenditure would most likely be funded by issuing new government bonds. Therefore, the issuance of BGs is a most expedient way of accomplishing the same thing with the vast pools of U.S. dollars deposited in European banks instead of using domestic dollars.The BG does not appear to have an overt credit creation action. The stock of dollars utilized already exists in the economic system. However, to the extent that a country defaulted on repaying the BG, the Fed would be called to honor its guarantee to the issuing bank which then would cause credit to be created.
Again the high yields are motivated by the same reasons explained previously. The discount charges will be larger to have the similar effect on the yield as an SLC which also results in the market makers making even more profit on BG issues.
5. Entry into a trading program
This is one of the most difficult areas to invest in that exist. There are plenty of people around who know something about this marketplace, but very, very few know how it truly works. Because enough people know something and the fact that there is significant money to be made, this market attracts many bad players. Two features distinguish these pretenders -- they lack financial and investment acumen and they ask for up front fees. From time to time these pretenders attempt to pull off a major fraud with a significant investor. This prompts warnings issued by the Board of Governors of the Federal Reserve System or the Comptroller of the Currency.These pretenders almost always attempt to setup their fund raising efforts in the U.S. The Fed, of course, will not have any part of that since the process is designed to control and utilize expatriate dollars, not domestic dollars.Banks routinely deny the existence of these programs, even the ones operating them. Most bank officers know nothing in any event. The only way into the system is to be able to certify substantial assets to a commitment holder or one of its sub-licensees. Finding either is not trivial task because there are more pretenders around than legitimate commitment holders. There are very few actual commitment holders. If an investor cannot certify at least $10 million and more likely $100 million, the chances of getting anyone's attention who is genuine are indeed remote. This is why, quite frankly speaking, these offices feel no presumption whatever in jointing for the joint venture, in as much as the funds provided would find it virtually impossible to locate a collateral commitment holder which this program provides on the very highest level.
Nonetheless, there is a way you can get into this interacting market. Designed to provide much of the information required for conducting a due diligence Lender/Investors are skeptical of opportunities that offer above-market returns.
If significant capital is required, little information is readily available with which to conduct a due diligence investigation, there is little motivation for committing funds. This is why XXXX offers the most valuable report on high yield Bank Debentures programs. This report is designed to provide a full understanding of bank debentures trading mechanics. Every statement made in it references either a legal precedent, report or letter issued by a government agency, trade publication or known entity in banking and finance. No pie in the sky deals just facts from official and well known entities.
Here is an overview of what you'll discover:
4. How A letter from the Securities and Exchange Commission, (S.E.C) stating that letters of credit are exempt from registration under the Securities Act of 1933.
5. An opinion from the U.S Supreme Court stating that letters of credit, when acquired for cash, are the equivalent of a deposit liability.
6. A legal historical example of a clean standby letter of credit, the text of which is clean of any requirements of documentation of nonperformance or default for the beneficiary to obtain payment.
7. Why the International Chamber of Commerce is encouraging more equitable practices in the area of standby letters of credit.
8. How to determined when a BANK-TO-BANK transmission is authentic and legal.
9. The issuance of standby LOC involves the separation of many of the services associated with lending, such as credit risk evaluation and underwriting, from funding.
10. Banks argue that they are in the risk management business - whether on or off the balance sheet.
11. An important difference between a standby LOC and conventional financing with uninsured depositors is that a standby LOC beneficiary retains the loan in the event of bank failure as opposed to having to stand in line with the FDIC and other creditors to recover the remaining assets of the bank.
12. The greatest motivation for off-balance sheet banking is the opportunity cost of funding assets with reservable deposits without a binding capital constraint.
13. In issuing an off-balance sheet instrument, the bank acts as a third party in a commercial transaction, substituting the bank's credit worthiness for that of its customer to facilitate exchange while sharing some of its risk with the lender/investor.
14. In effect, banks are willing to rent their credit standing or borrow credit analysis to lender/investors by guaranteeing the payment of principal and interest-which may be of value to a bank customer who is not well known or established. This enables a bank to receive an underwriting fee that can bolster current profits without tying up capital.
15. A bank may not be asked to issue a guarantee unless it is perceived by the market to be strong.
16. How a standby LOC is similar to an uninsured deposit and subordinated note in that it's value varies inversely with the credit risk of the bank.
17. The incentive to the lender/investor? What is the real return on this arrangement is likely to be greater than that of a deposit while still maintaining insurance against loss.
18. The types of entities who acquire Bank Debentures.
19. A discussion of repurchase programs and credit-enhanced loan transactions.
How a Repurchase Program/Reverse Repurchase Program can enable the note holder to reduce credit risk while facilitating a borrower's need for cash by rolling it over into a secondary market. By utilizing a well-drafted trust, escrow or custody agreement and the trust services of a creditworthy bank, a lender/investor can participate in a repurchase program that combines high return, liquidity and minimum credit and transaction risk
Every statement made in this report references either a legal precedent, report or letter issued by a government agency, trade publication or known entity in banking and finance.
Mr.Harold MILLER, Financier, California, USA Director of OXFORD TRADING GROUP LLC
SUSTAINED LOAN PROGRAMS:
Example of Financing by Private Placement
by Prof.Dr.NGUYEN PHUC LIEN, Economist
Director of WIM-IMPACT SA. & of PAN ASIA CORPORATION (Switzerland)
Geneva 2001
During years of works in Project Financing, we observed that Prime Banks prefer to provide Funds to Great Companies in rich Countries and that when a young and poor Entrepreneurs go to Banks, requesting funds to their excellent Projects, the Banks ask them if they can provide a Prime Bank Guarantee.
How a poor young man can provide such a Prime Bank Guarantee ? There will be no loan to him for his excellent Project ! How poor Countries can develop their economic Projects when the Bank Guarantees issued by their Central Banks are not accepted or difficultly acceptable with very low price ?
Our main efforts were in search of Methods sustaining loans to the above poor Countries and to the above young and poor Entrepreneurs. We were thinking of the combination of financial possibilities such as the Leasing Bank Guarantees, the motivation of Assets and the Private Placement in High Yield Investment Programs.
The Loan is not a gift. We don’t trust in easy money. We follow the conventional principles of Loans. But our main efforts are to find out current financial techniques which can be realized with the limited capabilities of poor Countries and of poor and young Entrepreneurs in order to follow the conventional principles of Loans required by Lenders.
During the past eight months, we have intensively worked with two Groups in USA, who, with their long and large experiences in this matter, are actually in connection with an important Offshore Financial Source. And during the entire recent ten days, from 22 to 31 July 2001, we worked directly in the Office of this important Offshore Financial Source for details of its financial techniques. This Financial Source is handling the Arab and American Offshore Funds. Its Branch Offices are in Free Tax Areas such as Dubai, Nassau (Bahamas). Its Paying Bank is in London.
Below are the concrete results obtained from our direct works with this Financial Source.
A. CONTENTS OF FUNDING PROGRAM
This Funding Program can be used worldwide to raise funds from USD.1 million minimum to USD.500 millions for all types of Projects including business start-ups, business acquisition and expansion, real estate acquisition and development. Preferences are for productive Projects, mostly in Agriculture, Foodstuff Industries and Public Health.
Funds are available to individuals or corporations in any acceptable Countries. This will be 100% Project Funding. The eligibility requirements are the same as with any other conventional Lenders:
4. The Project Owner has to show that he will have the Ability to repay the Loan and to pay the Interest ;
5. The 100% Loan is to be guaranteed by acceptable Bank Instruments;
6. The Ability to pay the Interest will be based on the potential Income of the Project.
(We will explain how to utilize the current financial techniques to satisfy these requirements in order to sustain Loans to poor Countries and to poor and young Entrepreneurs)
The Funding Program suggests Three OPTIONS:
1. Option ONE
This Option is a straight loan for 1 to 10 years. This is the real conventional loan: the Borrower is responsible to pay back the principal loan amount and the interests during the term of the loan. He has to provide acceptable Bank Instruments to guarantee the loan amount and the Business Plan with detailed Feasibility Studies showing potential income.
2. Option TWO< |
